384 F.Supp. 507 (S.D.N.Y. 1974), 69 Civ. 2227, Chris-Craft Industries, Inc. v. Piper Aircraft Corp.

Docket Nº:69 Civ. 2227 (MP).
Citation:384 F.Supp. 507
Case Date:November 06, 1974
Court:United States District Courts, 2nd Circuit, Southern District of New York

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384 F.Supp. 507 (S.D.N.Y. 1974)




No. 69 Civ. 2227 (MP).

United States District Court, S.D. New York.

Nov. 6, 1974

As Amended Nov. 12, 1974

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Paul, Weiss, Goldberg, Rifkind, Wharton & Garrison, New York City, for plaintiff; Arthur L. Liman, Jack C. Auspitz, Anthony M. Radice, and Richard A. Miller, New York City, of counsel.

Webster, Sheffield, Fleischmann, Hitchcock & Brookfield, New York City, for defendants (Bangor Punta Corporation, David W. Wallace and Nicholas M. Salgo); James V. Ryan, C. Kenneth Shank, Jr., and Robert A. Kandel, New Yory City, of counsel.

Sullivan & Cromwell, New York City, for defendant (The First Boston Corp.); J. F. Arning, C. W. Sullivan, and R. Urowsky, New York City, of counsel.

Chadbourne, Parke, Whiteside & Wolff, New York City, for defendants (Piper Aircraft Corporation, Howard Piper, Thomas F. Piper and William T. Piper, Jr.); Zachary Shimer, New York City, of counsel.

POLLACK, District Judge.

This case is on remand from the Court of Appeals to determine the quantum of compensatory damages due to Chris-Craft Industries, Inc. (CCI or CC herein) from the defendants who were not dismissed from this suit and to include in the judgment an injunctive provision barring Bangor Punta Corporation (BPC or BP herein) from voting for a period of at least 5 years the Piper shares it obtained through purchases for cash and by an exchange offer which did not comply with the securities laws. 1

Briefly, the Court of Appeals held herein that where a successful contender

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for control of a target corporation has attained part of its majority of the voting shares of the target corporation by purchases made in violation of the securities laws, the defeated contestant for control, although it neither purchased any securities from its competitor nor was deceived by any acts or statements of the latter, was entitled to sue the winner for damages as may be shown, measured by the reduction, if any, in the appraisal value of its shares of the target corporation when its opponent's position as a majority owner became established.

The right to sue and to claim such damages was accorded to encourage and implement the enforcement of the securities laws through private litigation and to deny to a securities law violator the fruits of obtaining shares of stock illegally, even though the unsuccessful contender was not induced by its competitor to enter the contest or to become a purchaser of the shares of the target corporation. The harm done to the defeated contestant according to the Court of Appeals is not that it had to pay more for the stock it bought but that it obtained less stock than it needed for control-- and this irrespective of whether it be shown that it could in fact have obtained control if there had been no interference with its opportunity.

Twice in the main opinion on appeal, it was clearly stated that, although there was an interference with CC's opportunity to obtain control, CC failed to establish that it could otherwise have succeeded in obtaining enough shares to give it control. 2

We agree with the district court's finding that CCI failed to show with reasonable certainty that it would have obtained a controlling position in Piper had it not been for the violations of the securities laws by BPC and First Boston. 480 F.2d 341, at 373. We cannot say that CCI would have obtained a majority of Piper stock had BPC not violated the law, . . . 480 F.2d at 378-379.

The Court of Appeals pointed out that 'the questions presented are of first inpression', 480 F.2d 379, and as a moment's reflection will show, in ascertaining the damages called for, the appraisal mandated by the Court of Appeals requires the use of hypothetical figures and values. The parties constructed and theorized such figures and values from circumspectly selected data to supply their damage estimate contentions. Not surprisingly, each side charges the other's expert witnesses with internal factual inconsistencies. The Court, in a sense, agrees in the main with both parties.

The Court of Appeals set forth the damage issue for this Court as follows:

The measure of damages should be the reduction in the appraisal value of CCI's Piper holdings attributable to BPC's taking a majority position and reducing CCI to a minority position, and thus being able to compel a merger at any time. 480 F.2d at 380.

Controversy produced by the mandate has arisen in part from perplexity in grasping its concept and forging a rational method of application. The words used are capable of a variety of interpretations and shadings, as the parties have demonstrated in their respective briefs, and they have put this Court to the difficult choice between following the strict literal meaning of the words and the broader remedial intent evidenced by the general thrust of

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the appellate decision. The task of reconciling the often conflicting results stemming from each course, has in turn produced as many complexities as it has clarified. Additionally, the quantification of unliquidated damages is hardly an exact science; computation thereof is accomplished basically by estimation and inference. See generally Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264-265, 66 S.Ct. 574, 90 L.Ed. 652 (1946); Columbia Pictures Industries, Inc. v. American Broadcasting Companies, Inc., 501 F.2d 894 at 898 (2d Cir. 1974); Crane Co. v. American Standard, Inc., 490 F.2d 332, 343 (2d Cir. 1973) (damage computations 'demand prodigies of prophecy and measurement beyond the capacity of jurors and perhaps of a judge').

The damage inquiry herein, naturally enough, called for expert testimony to assist in the evaluation of the manner and extent to which CC had been damaged by the violations established. The parties took many months to prepare for the hearing on damages. The selection and preparation of their experts was obviously carefully orchestrated; indeed, it would be naive to assume that the experts were selected and proceeded without regard to the interests of the party who called them. Rather, the record clearly reflects that by and large the experts were result-oriented, a fact which tended to restrict their contribution to something less than a full view of the damage problem and to make their results fall short of meeting the full scope of the real questions to be decided.

As a general concept, both parties agree that CC's damages must be measured by comparing the value of its Piper holdings prior and subsequent to BP's acquisition of majority ownership. The disagreement surfaces, however, in the differing paths which the parties take in reaching a valuation.

Preliminarily, there is a deep dispute over the base from which the CC ownership is to be valued for the damage inquiry. BP suggests that no injury occurred until the moment immediately preceding its acquisition of majority ownership. CC, however, argues that its Piper stock should be valued as if CC was the owner of 41%, and BP owned 31% Of Piper. 3

Neither BP nor CC, however, have fully addressed the purpose of the mandate in their analysis of the inquiry before the Court. The Court of Appeals' determination that BP unlawfully purchased 14% Of the Piper shares suggests that the 14% Must be effectively 'discarded' by BP; indeed, the injunction ordered by the Court of Appeals is aimed at effectively freezing the voting of that stock for a significant period. Without that 14%, BP would have owned but 37% On September 5, the date it gained a majority. CC, meanwhile, would have held at least 42%, the amount it in fact ended up with on that date. Since the inquiry here is to determine the damage suffered by CC attributable to BP, it is therefore appropriate to determine what the value of CC's block of stock would have been worth on September 5 4 absent BP's illegal conduct, i. e., if CC on that date had led in the contest 42% To 37%. In turn it must be determined how that value was affected by BP's taking a majority position and reducing CC to a minority position.

The methodology of that quantification is by no means simple. The Court of Appeals directed this Court to measure

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the 'reduction' in the 'appraisal value' of CC's Piper holdings attributable to BP's unlawful conduct. BP, therefore, insisting that the instructions must be literally followed, would have this Court consider BP's merger power and look only at whether there was any reduction in the appraisal value of the Piper stock in the context of a statutory appraisal proceeding, i. e., the amount that a Court would have awarded a Piper stockholder in a statutory appraisal proceeding on September 5, 1969.

CC, on the other hand, argues that BP's literal interpretation of the mandate and any use of the concepts of a statutory appraisal would render the Court of Appeals' decision nugatory. CC argues that BP's interpretation would erase any difference in the statutory appraisal value of the Piper shares measured on September 5 just prior and then subsequent to BP's gaining majority ownership.

CC's reading would jettison the measured phrasing of the Court of Appeals' mandate. It must be presumed that the talisman, 'appraisal value', was chosen purposefully. The words so used must be viewed in the legal context in which they appear in the mandate. The Court of Appeals associated the reduction of the appraisal value to be found with BP's 'being able to compel a merger at any time.' 5

If the word 'appraisal' is to be considered in its more colloquial meaning, i.e. 'to fix a price . . . as an official value' (Oxford...

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